EQUITIES FALL AS CONCERNS ON EARNINGS TRUMP RISE IN ENERGY STOCKS, POTENTIAL FOR TAX CUTS/STIMULUS
Equity markets began the first full week of trading for 2009 on a cautious note, with the markets taking a relatively negative sentiment that was supported by inevitable concerns regarding the release of employment data on Friday and earnings data scheduled to begin next week. Companies whose earnings would be affected most significantly by slowdowns in consumer and business spending and offshoots such as loan defaults saw the greatest declines today. Wireless communications giants Verizon and ATT fell today as analysts issued several reports stating that the recession will likely hurt growth, particularly in the higher margin “smart phone” services. One piece of positive news from the tech sector came from Apple, as CEO Steve Jobs is reported to be suffering from a hormone imbalance, causing the gaunt appearance, which caused renewed health concerns. Financials such as JP Morgan Chase fell on concerns that loan defaults will increase. Analysts are calling for earnings at S&P 500 companies to fall 12% year over year and drop 11% in the current period. The concerns regarding earnings managed to keep a cap on any near term gains from the announcement that a significant percentage of President Elect Obama’s stimulus plan will be in the form of tax cuts for individuals and businesses.
Overall, the equity markets appear to be taking tentative steps toward gains. Rallies in equities will have to be backed tangible earnings and transparency. This process will take time to build, as was evident by the breakdown from the seemingly overdone “flight to quality” move into Treasuries did not translate into fresh equity buying, despite the historical precedent of early January being the period where fresh capital moves into the market. Traders and investors should expect cautious movements in equities over the coming weeks as hope and concerns wage war for control over market sentiment.
Technically, Dow Futures should continue their pullback to initial support level of 8820, with next level of support at 8725. A bounce off this level should set resistance in place at 8980.
March Dow Futures settled at 8918, down 40. March S&P futures settled at 927.40, up 200. NASDAQ futures settled at 1265.00, up 12.00.
Rich Roscelli and Paul Brittain.
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